Meese Probe Focusing on Alleged Bribe Plan : He Reportedly Was Told of Scheme to Assure Iraq Pipeline Construction by Paying Off High Israeli

WASHINGTON — The independent counsel investigating Atty. Gen. Edwin Meese III is focusing on a memo from attorney E. Robert Wallach to Meese that allegedly cited a plan to pay off a high-ranking official in Jerusalem to help head off Israeli interference in a $1-billion Iraqi pipeline project, government sources familiar with the inquiry said Thursday.

Meese reportedly did nothing about his knowledge of the alleged 1985 proposal, the sources said. The Foreign Corrupt Practices Act prohibits U.S. citizens from bribing foreign officials.

Lawyer Indicted

It was not clear whether Meese or his longtime friend Wallach, a San Francisco lawyer who is under indictment for his role in the Wedtech scandal, violated any laws in connection with the payoff plan. Nor was it known whether any payment to an Israeli official was actually attempted or accepted.

Lawyers representing the attorney general said that "no actual or potential violation of law was brought to Mr. Meese's attention during his limited participation in discussions regarding the project."

Yossi Gal, a spokesman for the Israeli Embassy here, after checking with superiors in Jerusalem, dismissed the purported document as "a wild fantasy that is not even worthy of comment."

Wallach's attorney, George G. Walker, reached in Brooklyn, where he is preparing Wallach's defense in the fraud conspiracy for which he has been indicted in New York, said: "I have absolutely no comment." He would not say whether he was aware of the memo and noted that he began representing Wallach only two weeks ago.

Wallach has pleaded not guilty to the conspiracy charges.

It is not publicly known whether Wallach had any financial stake in the pipeline, which was never built. Wallach apparently has told U.S. officials that he supported the pipeline as a means of promoting peace in the Middle East.

Executives of Bechtel Group, the huge San Francisco construction firm that was bidding to build the pipeline, said last fall that Wallach was a U.S. representative of Bruce Rappaport, a wealthy Swiss oilman who was a partner with Bechtel in the project.

Sources familiar with the investigation by independent counsel James C. McKay described the Wallach memo as the most serious allegation raised against the attorney general thus far and said that it has become the primary focus of investigators.

These sources, stressing the extreme sensitivity surrounding the memo in the independent counsel's office and throughout the U.S. government, fear that public disclosure of the alleged plan could "bollix up the investigation," as one put it, by allowing participants to jointly attempt to construct a legal explanation for their actions.

Although there apparently is no evidence that the attorney general was directly involved in the scheme, several sources in the Justice Department and other government agencies say that the allegation of his inaction on the memo--if true--could force Meese to resign.

Feared Israeli Attack

The Iraqi pipeline was to run close to the Israeli border, carrying oil to the Red Sea port of Aqaba, Jordan. Because Iraq and Israel are longtime enemies, Wallach and others involved in the project allegedly had sought the payment as a way to defuse Israeli opposition to the pipeline, such as a direct military attack on it.

Some sources said that Shimon Peres, who was Israel's prime minister in 1985 and is now the foreign minister, was the official targeted for the bribe attempt.

In the pipeline venture, many firms and individuals stood to gain by obtaining an Israeli pledge not to sabotage the project during the four or five years of operation needed to recover its cost. They include Bechtel and its American competitors for rights to construct the project.

But many of the potential beneficiaries are not American citizens and, as such, may not be subject to U.S. laws prohibiting the payment of bribes to foreigners. They include citizens in Iraq and Jordan and various foreign suppliers and middlemen in the pipeline's operation.

Swiss Financier

Another potential beneficiary was Rappaport, the Swiss financier and oil magnate who agreed with Bechtel in 1985 to become a partner in the project. Rappaport was to line up financing and security guarantees for the pipeline and his oil company was to sell the crude petroleum that would flow through the line.

Rappaport brought Wallach into the deal as an intermediary in his dealings with Bechtel, a Bechtel executive told the New York Times last year.

One knowledgeable source called Rappaport an extraordinarily wealthy Swiss citizen who is a major supporter of Israel, having close friendships with Israel's top government officials and political figures.

When contacted in Geneva Thursday, Rappaport denied all knowledge of the purported scheme to pay off an Israeli official.

"There was no such plan at all," he said. "I heard of this the first time today from my lawyers."